Diana Shipping Inc (DSX) 2005 Q4 法說會逐字稿

Good morning. I my name is Toni, and I will be your conference facilitator today. At this time I would like to welcome everyone to the Diana Shipping fourth quarter 2005 earnings conference call. [OPERATOR INSTRUCTIONS]. It is now my pleasure to turn the floor over to your host, Edward Nebb. Investor Relations for Diana Shipping. Sir, you may begin your conference.

Thank you, Toni, and welcome to all of you who are joining us for the Diana Shipping Inc. fourth quarter and year end conference call. The members of the Diana Shipping management team who are with us today speaking, will be Mr. Simeon Palios, Chairman and Chief Executive Officer, Mr. Anastassis Margaronis, President, Mr. Konstantine Koutsomitopoulos, Chief Financial Officer, and also present on the call are Mr. Ioannis Zafirakis, Vice President and Secretary, and Ms. Maria Dede, Chief Accounting Officer.

Before management begins their remarks, let me briefly summarize the Safe Harbor notice which you can see in it's entirety in the news release that we issued previously. Certain statements made during this conference call which are not statements of historical facts are forward-looking statements and are made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on assumptions, expectations, projections, intentions and beliefs as to future events that may not prove to be accurate. For a description of the risks, uncertainties and other factors that could cause future results to differ materially from what is expressed or forecast in our opinion forward-looking statements, please refer to our filings with the Securities and Exchange Commission.

Now let me turn the call over to Mr. Simeon Palios, Chairman and CEO. Mr. Palios, please go ahead, sir.

I'm pleased to welcome investors and analysts to our conference call to discuss the financial performance of Diana Shipping Inc. for the fourth quarter and full year 2005. It has now been nearly one year since our initial public offering. During this time, we have clearly demonstrated prudent management strategies that have delivered strong financial performance and solid dividend returns for our shareholders. In a moment, the other members of our senior management team will review business and market conditions as well as a detailed financial discussion.

First, I wish to briefly comment to some key developments of the past year. As you have seen from our press release, we reported net income for the full year 2005 of $65 million, compared with $60.1 million for 2004. Since the year ago period included a 20 million gain on the sale of a vessel, the increase in earnings generated by operations is quite significant.

It is important to emphasize that we have kept our commitment to our shareholders to pay dividends equal to 100% of our variable cash from operations each quarter after providing for certain operating expenses. In fact, our dividend for the fourth quarter of $0.40 per share exceeded our earlier expectations.

We have continued to build our earnings capacity by expanding our fleet. Today we have 13 vessels, compared with 8 at this time last year. Fleet utilization stood at the high level of 99.7% for the year 2005. With respect to the employment of our vessels we have continued our strategy of balancing long-term and short-term time charter contracts as a way to respond to the movements of rates within our market. Today we have a mix of six vessels chartered at fixed rates through late 2006 and beyond, three vessels have long term charters with adjustable rates and four vessels under short-term charter arrangements.

Finally we maintain our commitment to a strong balance sheet, which we believe provides the resources to take advantage of opportunities and to weather the challenges inherent in our industry. With that, I will now turn the call over to Mr. Margaronis. Thank you.

Thank you, Simeon.

I will present you with a brief overview of the latest developments in the dry bulk shipping market and the expectations for this year and next as regards demand and supply for large dry bulk carrier vessels. On the first of January 2006, the bulk dry index stood and closed at 2438. While yesterday closed at 2621, an increase of about 7.5%. At the beginning of this year, the Baltic Panamax index closed at 2403 and yesterday closed at 2234, a drop of 7%. The Capesize index started the year at 3105 and closed yesterday at 4112, an increase of 32%.

It is generally accepted that the world micro economic parameters increased the demand for transportation of the commodities carried in Panamax and Capesize bulk carriers. Most economists expect global gross domestic product growth for 2006 to be in the region of 4%. With the U.S. growing at around 3.5%, the Euro zone at 1.5% and Japan at just over 2%.

According to a Bloomberg survey, the Japanese economy expanded at an annual rate of 4.9% in the fourth quarter of 2005, with industrial production rising 2.7% during the same period, the largest gain in 2 years. These statistics make the 2006 growth forecast for Japan look rather conservative. China has had 3 years of solid growth of just under 10% per annum and the World Bank predicts that in 2006, GDP will grow by a further 9.2%. India will continue growing at a healthy pace, with gross domestic products grow at around 8% in 2006. For the same year, Russia's GDP is expected to grow at around 7%.

Turning now to the dry bulk trades it is estimated that approximately 2.6 billion metric tons of cargo were shipped in 2005 and about 2.7 billion metric tons are expected to be shipped in 2006. Most of this growth can be attributed to increases in the iron ore, coal and grain shipments. Iron ore is expected to account for about 45 million tons of this extra demand, of which about 36 million tons will be destined for China, bringing this country's imports during 2006 to approximately 315 metric tons in millions.

Growth in the transportation of coal is expected to account for about 25 million metric tons of the increase of the dry cargo shipments. Grain cargos will account for about 7 million tons of this increase in shipments. Iron ore: the above-mentioned iron ore figures are based on projected total steel production in China of 390 million metric tons, representing a 12% year-over-year increase. The equivalent increase in 2005, compared to 2004 was about 24%. It is quite easy to realize the positive effect on iron ore imports if steel production in China continues to increase at a similar rate as it did last year.

According to shipping analysts [Mersk Broker], Chinese demand for imported iron ore could easily top 400 million tons per annum by 2010, double its 2004 level. Australia and Brazil will most likely capture the lion share of these increased volumes, while the rate of growth in Indian experts is expected to decline. This will lead to an increase in the per ton mile demand, as the new shippers will require longer sea passages to deliver their cargoes compared to the Indian suppliers.

There is no doubt that during the first quarter of 2006 demand for the transportation of iron ore has been affected by, firstly the prolonging of the price negotiations for the iron ore contracts with new prices to become effective on April 1, 2006, and secondly, the Chinese New Year holiday which ended about 2 weeks ago. On the price negotiating front, customers are aiming for a 10% increase in the price of iron ore for 2006, while producers, confident by the fact they are capable of selling all of the iron ore they can mine are holding out for a 20% increase. Shipping analysts expect a rush of purchases to take place as soon as the new prices are agreed to beat the first of April deadline for the new contract prices. It is likely this will be followed by a short-term easing off of purchases until normality returns during the third quarter. The smoothening out of this process is made difficult due to the inventory and cost of storage constraints.

Coal. Commodity analysts McClosky expect that global trading in thermal coal and coking coal will increase this year due to higher` demand from the United States, Japan and India. Trade in thermal coal will rise 4.2% to 520 million metric tons in 2006, while sales of coking coal should rise 8.9% to 221 million tons approximately. The growth rate of industrial production in Japan will account for a large part of the increase in the shipments of thermal coal as fuel for their power generating plants and coking coal for their steel plants.

The poor quality of Chinese coal and the reduced exports mentioned below have led many Japanese and South Korean receivers to seek cargoes from more reliable producers in and Australian and South Africa. As most of the Australian coal mines are producing at or near their maximum capacity, the South Africa mines are the main beneficiaries of the shift in product sourcing. The beneficial effect on demand for shipping is obvious from the longer sea voyage for this cargo from South Africa to Japan compared to China.

According to JP Morgan research, Chinese demand for coal should grow by 9%, compound average growth rate between 2005 and 2007, outstripping domestic supply growth of about 8% compound average growth rate for the same period with coal exports likely to continue falling while imports rise. Imports are expected to rise by 34% year-over-year, and exports to fall by 13% year-over-year. During the next 2 years, China's coal export should continue to fall as domestic demand remains strong and supply growth slows down with the continued closures of uneconomical and unsafe mines.

Turning to grain now. As mentioned above, in calendar year terms, analysts expect an extra 7 million metric tons of combined grains to be shipped this year compared to 2005. Global grain trades for the crop year 2005 to 6 ending in June are forecast to increase by about 2% from the previous period, to reach 330 million metric tons. Higher grain and soybean imports by Europe and north Africa are partly offsetting lower imports of grain by China. It is too early for analysts to make forecasts for the 2006-2007 crop year, but there has been a marked increase in soya shipments from Brazil which should have a positive effect on freight markets between March and July this year.

Furthermore, China's continuous increase in demand in soya beans is beginning to positively affect the grain trade overall demand as the volumes increase constantly. In the short-term, the South America grain export season, due to commence in a few weeks, should have a positive effect on demand for Panamax bulk carriers.

Looking at the supply of vessels, much has been written lately about the large number of vessels scheduled for delivery during 2006 and the negative affects on the demand/supply balance of tonnage. There are 262 Panamax and post-Panamax vessels, as well as 129 Capesize bulkers scheduled for delivery between now and the end of 2008. These together represent about 23% of the existing fleet of these types of ships.

When looking at these numbers, we should not neglect to take account for the following factors affecting the supply of tonnage: The first is scrapping. It is true that for the last 3 years there has been minimal scrapping of bulkers, mainly due to the strength of the freight market which started moving up in the middle of 2003. This cannot continue indefinitely, especially with freight rates well off their peaks since last March and April.

The total number of Panamax vessels 25 years old and older, is no less than 134 units aggregating 8.8 million tons which constitutes about half of the vessels scheduled for delivery between now and the end of 2008. At the same time we should keep in mind that by that time a further 181 Panamax ships will have fallen into this age category, creating a total of 315 vessels, which by the end of 2008 will have reached or gone beyond their scrapping age.

In the Capesize fleet, the figures are less striking with more modern vessels sailing the oceans compared to the Panamax. However, when looking at the figures below, we should keep in mind that the useful life expectancy of the Capesize bulker is about 5 years less than for a Panamax bulker. Today, 15% of the fleet, about 105 vessels, is over 20 years old, amounting to 17 million metric tons deadweight.

We can therefore safely assume that candidates for scrapping due in 2006 will be drawn largely from the pool of 31 ships of 5.7 million tons deadweight, which by the end of the year will be over 25 years old. We can also say that approximately 95 vessels will be 25 years old or older by the end of 2008. Obvious scrapping candidates, representing about 74% of all Cape Size vessels on order.

The second factor affecting supply is congestion. Congestion at both the loading and discharging ports around the world eased considerably, especially during the second half of 2005 compared to 2004 and the earlier part of the year. Analysts agree that congestion is not likely to be abolished during 2006 as we expect record volumes of cargo to move through the world port system.

However, some analysts believe that an efficient quota system and streamlining of shipments will ensure that the long queues are shipped seen at several ports around the world during 2004 will not reappear anytime soon. Others, are less optimistic that the lessons of the past will lead shippers to book the cargos in a more efficient manner than was done in the past. The reasoning here is that unless everyone acts responsibly than those who do will end up with their ships delivering their cargoes late by finding their vessels at the end of the queues.

Whether or not congestion returns to the level seen in 2004 is not entirely relevant to our assumptions on demand and supply. What is important, is that in spite of port improvements, which have been slowly taking place, there is no way that the predicted increased volumes of cargos can be shipped without the significant increase in congestion. If this indeed occurs, it will inevitably result in the artificial reduction in the supply of tonnage.

To cite from examples, we're already seeing nine-day delays in some western Australian iron ore loading ports which are the highest since 2004. In October 2005, the delay in these ports was as little as 3 days. In the east coast of Australia the delays of coal loading ports were running at 10 days back in October 2005, when today can be as long as 3 weeks. Congestion has also returned to some of China's iron ore discharging ports, such as [Bei Lun] where vessels waiting times are around one week. So much then for the effectiveness of the quota systems, port improvements and streamlining of shipments in reducing congestion.

Where does all of the above leave us as far as the balance of supply and demand in large bulk shipping is concerned for 2006 and beyond? There are too many variables affecting demand and supply to enable us to make accurate predictions. All we can say is that when taking the aging fleet, congestion and the restructuring of the trade routes from shorter to longer haul sea voyages, what appears at first sight to be a large number of new buildings coming to the market within the next 3 years may not look so threatening after all.

As long as the rate of growth and demand for transporting bulk cargoes remains strong and is not disrupted by social or political events, it is likely this new tonnage could be absorbed by the market and the rates could indeed steadily improve, albeit with fluctuations caused by events temporarily disrupting the flow of commodities from producers to customers. Some such events have been mentioned earlier on. Our company has streamlined the employment of the fleet, with a mix of short and long-term time charters, so as to be able to take advantage of any future positive trend in freight rates, and at the same time secure a steady flow of income from longer term charters.

With the three recent 12 and 24-month charters with variable short-term charter rates contracted with Cargill and [BHP Billiton] are examples of the importance we place on the credibility of our customers, whom we seek to service with high quality modern vessels and competitive terms. This policy will enable us to take advantage of short-term opportunities, and at the same time safeguard the payment of reasonable dividends to our shareholders.

I will now turn the call to our CFO Konstantine to provide a summary of the financial results for the full year and fourth quarter 2005.

Thank you, good morning to all. I'm pleased to be discussing today with you Diana's results for the twelve months and fourth quarter ended December 31, 2005.

For the year ended December 31, 2005, compared to the year ended December 31, 2004, net income increased by $4.9 million or 8% to $65 million for the year ended December 31, 2005, compared to $60.1 million for the same period in 2004. The increase in net income is primarily attributed to the enlargement of the fleet resulting from the delivery of five vessels, four Panamax dry bulk carriers and one Capesize, in February, May, and November, 2005. This increase is offset by a gain of 20 million, resulted in the fourth quarter of 2004 from the sale of the vessel [Amphitretin].

More specifically, voyage and time charter revenues increased by $39.3 million or 62% to $103.1 million for the year ended December 31, 2005, compared to $63.8 million for the same period in 2004. This increase is attributable to include average daily rate achieved by our vessels and to the increased number of operating days that we achieved due to the enlargement of our fleet following acquisition of the Protefs in August 2004 which was fully operational in 2005. The delivery of Calipso and Pantelis SP in February of 2005, the delivery of Clio in May 2005, and the delivery of the [Torancetis] in November 2005. In 2005 we have total available days of 3471, and fleet utilization of 99.7%, compared to 2319 total available days and a fleet utilization of 99.8% in 2004.

The daytime charter equivalent rate for the year ended December 31, 2005 was $27,838, compared to $25,661 for the year ended December 31, 2004. Voyage expenses increased by $2.2 million or 51% to $6.5 million for the year ended December 31, 2005, compared to $4.3 in 2004. This increase is attributable to increased commissions. Commissions paid during 2005 and 2004 to our fleet manager and unaffiliated ship brokers amounted to $6.8 million and $4.3 million respectively. The interest in commissions was primarily the result of the increase in operating days in 2005 and improved average time charter rates which increased the amount of revenue we reported.

Vessel operating expenses increased by $5.5 million, or 58%, to 50 million for the year ended December 31, 2005, compared to 9.5 million for the same period in 2004. This increase was primarily the result of increased number of ownership days during 2005 and increased expenses in relation with repairs maintenance and crew wages. Daily operating expenses increased by 4% to $4,261 in 2005 compared to $4,103 in 2004. Management fees increased by $0.8 million, or 89%, to $1.7 million for the year ended December 31, 2005, compared to $0.9 million for the same period in 2004. This increase is attributable to increased average number of vessels under management, as well as the increase in the monthly management fee from $12,000 to $15,000 per month per vessel in November 2004.

Interest and finance costs increased by $0.5 million or 23% to $2.7 million for the year ended December 31, 2005, compared to $2.2 million for the same period in 2004. Interest and finance costs increased due to financing costs incurred under our revolving credit facility, [such as commitency]. This interest was offset with decreased interest expense which was $1.4 million in 2005 compared to $2 million for 2004. This decrease resulted from the repayment in full of the outstanding balance of our loans and the fact we did not incur any debt until November 2005.

For the three months period ended December 31, 2005, compared to the three months ended December-- sorry-- September 31, 2004-- December 31, 2004. Net income was $13.9 million for the fourth quarter of 2005, compared to the net income of 31.6 million reported in the fourth quarter of 2004. The 31.6 million net income of the fourth quarter of 2004 includes a gain on a vessel of approximately $20 million, as compared with no gains from similar activities in 2005. More specifically, and with respect to our quarterly operations, voyage and time charter revenues increased by 5.5 million or 30% to 24 million for the last quarter of 2005 compared to 18.5 million in 2004. The increase is attributed to the increase in operating days in 2005, due to the delivery of 5 vessels in our fleet.

The increase resulting from the enlargement of the fleet was offset by the decrease in time charter rates during the last quarter of 2005. Fleet utilization was 99.6 for the last quarter of 2005, compared to 100% in 2004. Available days were 984 for 2005, and 644 in 2004. Time charter equipment and trade for the last quarter of 2005 was 23,083 per day compared to 26,722 per day for 2004. Voyage expenses increased by $0.1 million, or 8% to 1.3 million in the last quarter of 2005, compared to $1.2 million in 2004. Higher revenue increases attributed to the increasing gross revenues.

Operating expenses increased by 1.6 million, or 59% to 4.3 million for the last quarter of 2005 compared to 2.7 million in 2004. The increase in operating expenses is primarily attributed to increased ownership days resulting from the delivery of five vessels in 2005 and to increase storage repairs and increase in maintenance in 2005. Daily operating expenses were 4309 in the last quarter of 2005, compared to 4266 in 2004, a 1% increase.

Management fees increased by 0.2 million, or 67% to 0.5 million in the last quarter of 2005. Compared to 0.3 million in 2004. The increase is attributed to the increased number of vessels under management in 2005, and the increase in the monthly fee from 12,000 to 15,000 in November 2004. Interest and finance costs decreased by 0.2 million or 25% to 0.6 million for the quarter ended December 31, 2005, compared to 0.8 million for the same period 2004. This decrease is due to the fact that since March 2005, we had repaid all of our outstanding debt and we did not incur other debt until November 31, 2005. However, this decrease in interest was offset with commitment fees incurred with respect to our revolving credit facility.

Turning to our dividend policy for the fourth quarter of 2005 the Board of Directors has decided to declare a dividend of $0.40 per share. Diana intends to declare and pay quarterly dividends that are substantially equal to our available cash flow operation during the prior quarter. In calculating the cash dividends we take into account expenses, dry docking reserves, contingent liabilities and capital needed to support our company's operations. In times we have debt outstanding we intend to calculate dividends per share however we're financed entirely with equity.

Thank you for your attention, and now we'll be pleased, together with everybody else to respond to your questions. I will turn the call to the operator, who will instruct you was to the procedures for our questions.

Thank you.

Our first question is coming from Scott Burk of Bear Stearns. Please go ahead.

Good morning, gentlemen. I had a question about the recent pretty strong increase in Panamax rates and Capesize as well. What do you think is the cause of that, and is it associated with the iron ore negotiations?

Hi, Scott. It's Stassis, I'll take this question if I may. There's a strong possible which regrettably we usually discover after the event that this indeed is related to the iron ore negotiations. We have just seen the beginning of the second phase of these negotiations mainly between the Chinese and Japanese steel customers, or iron ore customers, steel producers and the mining companies like CRD and [Riotinto] and BHP. Now there is also the prospect in future of an increase, which might not be as bad as people expect, but to be on the safe side we are pretty confident there is a bit of hedging especially after the end of the Chinese holiday by the steel mills to buy iron ore before the first of April.

There is, however, constraints there are constraints and they have to do with the ability to stockpile both at the steel mills and imports around China and Japan, iron ore, and we are seeing alimentary and stockpiles increasing to pretty high levels already. So we have to assume that will there be also a good demand to shift this inventory towards the steel mills for production, if there's not going to be a bottleneck of produce both at ports and steel mills and on rail lines and railway wagons if this trend continues. So we are confident that the results will generate demand together with some sort of hedging to avoid the price increase taking place.

Okay. And let me-- let me ask you also in terms of acquisitions or the S and P market how do you guys currently view that and do you see anything in the near future in terms of acquisition opportunities?

Well, we're in constant touch with the ship and purchase markets. We're watching it very carefully. Both the resale vessels, which are coming on stream. We're watching the Panamaxes and the Capes. And at the moment we are watching carefully to see how the prices are developing in line with the freight market, and we believe that we have to be careful on our next acquisitions, but rest assured that we are watching it very, very carefully. So it's not going to take very long when we are going to take some decisions.

Okay. Thank you very much.

You're welcome.

Thank you. Our next question is coming from [Doug Mavnick] of Jefferies & Company. Please go ahead.

Thank you. Congratulations on a great quarter. I just have a couple of questions, one a follow-up from the previous, given the current outlook for this year, but with the potential for, an improvement in-- in rates just in general, do you care to share what direction you see asset values trending over the next several months, and how that may affect any acquisition decisions in the near term?

Well, this is something which is very difficult to gauge, and this is the reason that we have structured our company such a manner that we can be opportunistic. We can be opportunistic, because we have long-term time charters. We have a mixer of short and medium term time charters, and of course we have a line of credit available to us for using it at an opportunistic time. So we have a corner-- everything around shipping. We're long-term, short-term, and cash in the bank to enable us to grow.

Great. Thank you. And-- and in terms of the your employment strategy, you mentioned it is a mixed strategy right now with some vessels on adjustable rate mortgage-- adjustable rate contracts some on fixed-rate contracts and others on more short-term contracts. Do you anticipate those vessels that are-- are currently on more shorter term types of contracts being entered into longer term contracts if you see an appreciable increase in those longer-term rates? Or do you prefer having a mixture?

No indeed the charters with Cargill are in such a manner that we can change the short-term into long-term and that's the attraction.

Okay. Good. And then-- then the only other question and I'll turn it back over, has to do with scrapping. Stassis went through a lot of details in terms of what is going to be approaching 25 years of age here before very long. Do you guys have an internal feel or an internal estimate for what you anticipate scrapping to be? Because there are a whole lot of 1981-built vessels that are going to be approaching their special survey this year.

Yes, we have some statistics coming out and projections from Clarkson's which we tend to agree even though we do not obviously have a firm view on this. Things vary depending on the financial status and expectations of earnings of the owners of these older ships. The estimates that are given by Clarkson's are in the region of 5 million tons of scrapping only for 2006 and another 5.5 million tons, I think for 2007. Now, this is a number effectively, which will certainly not be accurate in the sense that it would rather be more or less.

We hope it will be more because there are two problems with passing the fifth special survey for ships. For ship owners to tackle firstly the cost of these rather rigorous tests that they are going to have to put their ship through in order to get the appropriate certificates to allow them to trade for another 5 years, and secondly, the ability of repair yards in order to dry dock and actually perform the survey. This now coupled with any degree of uncertainty which might exist for the earnings of these older ships-- because we should remember they cannot call at all ports freely like the young ones. There are restrictions, some parts of the world ban them completely from entering their ports might lead-- and we hope they will a number of owners to protect the profits they have already earned from trading these ships through the years by selling them for scrap at what today is a lucrative scrap price rather than undertake to pass a costly special survey and face the uncertainties of the future.

So to answer your question, we do believe there will be at least as much, we hope, scrapping as Clarkson are predicting in their reports in the bulk trade, and these are the numbers that we are taking into consideration when running our own models.

Great we tend to agree. Thank you very much, guys.

You are welcome.

Thank you our next question is coming from Jon Dawson with Dawson Herman Capital Management. Please go ahead.

Hello. Two questions. One, where do you think the-- the market is now for ships in terms of what an acquisition would cost? That's number one, and number two, on the contracts, sort of the variable day rate contracts that you have signed, could you just go into a little bit more detail in terms of your flexibility, in terms of when you could fix rates and-- and what seems to be a little bit of a departure from your prior relationships with your customers?

Hi, John. It's Simeon.

Hi, Simeon.

After adjust for the prices of the vessels let me concentrate on the Panamaxes. The last vessels which were sold recently were the [maritime ships, the maritime kampur and the maritum suaram.] there were 74, approximately thousand, tons built in 2002. And they were sold on block at $61 million. Now, I think that that price is somehow higher than what they should have commanded in view of the freight market today.

Because for a year charter on these vessels, we-- the day they were sold-- perhaps not today, but about a week ago, they could not fetch more than 14.5 to $15,000 daily for a year. So you see there is a lagging period between the sale and purchase and the freight graph, and I'm expecting [astatically] this to-- to come somehow closer, and then it will be the time for us to move.

Now as regard to the Capes, the Capes have also been the two ships which have been sold and bought by the Portuguese. Two Capes, brand new, at $66 million each. And judging from how much was the value of those Capes before the coming of China into the scene, which was between 35 and $45 million, we considered the $66 million for a piece of the Cape as an expensive proposition. But rest assured that we are watching it very, very closely.

I have no doubt.

On your second question, John. The adjustment of the earnings of the ships on the variable short-term rate contracts. I mean, these are-- are basically time charter contracts in the sense that-- the same sense that all of the other ships are, but the difference here is that every 15 days the rate is adjusted to take-- the daily rate is adjusted, the time charter rate, to take into consideration the average time charter rate of 4 routes which are predetermined and they are quoted on the Baltic exchange, for that type of vessel. In this case a 74,000 ton Panamax bulker.

In order to facilitate the payment of hire 15 days in advance, the payment that takes place is actually the average daily rate for the preceding 15 days on those time charter routes, and that is published daily. So that's a simple process of obtaining the average. Now on the Cargill contract, this goes on for the entire duration of the contract, which is 11 to 13 months on average, say, 12 months, unless we decide to change the formula, and agree on a fixed rate for the remainder of the period, in which case, then, there is a different process which kicks in.

At the end of this year, Cargill will reserve the right to basically adjust the payments that have been made to the actual average for the actual period that the ship was up in their service, which you appreciate is going differ slightly from what they have paid, either on the plus or the minus because don't forget that they start buy paying for the period that they did not have the ship in their service, the preceding period, for 15 days in other words. So that's the only variation that's going to be an adjustment at the end of the contract, the time-charter contract.

The BHP Billiton contract is the same with two differences. One, we do not have the right to convert to a fixed rate for the duration of the period, and the second is that the adjustment to the actual average time charter rate happens every 15 days. In other words, it's not done at the end of the period, but it is done every period-- every 15-day period. And of course I shouldn't forget that BHP have agreed to pay an extra $850 a day on any number that we have just mentioned now as being the average of the time charter rules. Pretty plain formula.

Okay. Thank you very much.

Something, John, let me explain to you what we mean by the four routes. The four routes include the U.S. gulf-Japan, trans-Pacific, trans-Atlantic, and Pasero-Far east.

Okay. Thank you very much.

Thank you, John.

Thank you. Our next question is coming from [Tim D'Addario] of Wachovia Securities. Please go ahead.

Good morning. With regards to management fees, I believe there was some consideration in the past as far as purchasing your management company. Can you provide us, you know, any further color around your thoughts regarding that?

Yes, hi this is Konstantine Koutsomitopoulos. The commitment for the folding in of the management company is still there, and this we expect to happen by the end of the first quarter.

Okay. Thanks. And I guess just expanding on a few of the previous questions regarding acquisitions, I assume that there's no major plans to diverge from your-- your historical strategy of just deploying Panamaxes and Capesizes, can you comment on that, or is this --

Well, we have always on our minds that there are other shipments of the market, which are out of phase, or they could be out of phase and of course in the past we used to have other ships apart of the Capes and Panamaxes. But I think at this particular moment, we have to stick to the Panamaxes and Capes.

Okay. Thank you so much.

Thank you. Our next question is coming from [Joel Good of Joel Good Consulting Services]. Please go ahead.

Yes, gentlemen, directed to any member of the management team, I think my question was just answered by your last comment. I was wondering if you were considering expansion or diversification of the fleet into smaller vessels such as the handy class?

Well, I think that the smaller the vessel, the less return you have, and of course you have different charters if you will, which at this particular moment we think is not prudent to go. So we will stick to the Capes and the Panamaxes because A: we know this trade very well, and I think the smaller type has not established the size as yet. The Panamaxes have definitely established their size as the maximum size that can cross the Panama canal. And the Capes also have established their signal by being a multiple to the Panamaxes. So we would like for the time being to stick to those two categories.

As a follow-up the majority of the fleet is Panamax, do you anticipate another Cape class recess any the future at some point?

Yes, we will do that, and we are thinking about it very closely, but we have to increase the size after our Cape capacity.

Thank you very much, gentlemen have a good day.

Thank you our next question is coming from Jim Hoag, a private investor. Please go ahead.

Thank you very much for the clarity with which you've handled this so far. My questions have primarily do to do with the value of the dollar. Every time you talk about fees and expenses, and payments and cash in the bank, I assume that you are-- you are thinking of denomination in the dollar, but many economists are suggests that there will be a tremendous devaluation of the dollar, and I'm wondering how you are positioned, if you are positioned to deal with that. And then there's the Iranian [borscht] which will be supposedly selling oil for Euros instead of dollars, so could you comment on that, please.

Well, first of all I think that we have to realize what are our expenses and what is our income. Mainly, our income is-- or not mainly-- 100% in dollars. And our expenditure -- some of it in dollars and some of it in other currency like Euro and Japanese yen. So I think that if you stick-- and furthermore, if you had a loan, your loan would be in dollars also so you don't have the parity problem. But here we have to gauge how much we are spending in other currencies away from the dollar, and I think that for the time being, the number is not substantial, so if we stick to dollars throughout, although I hear you very loud and clear about the fear of devaluation of the dollar, I think it will be pretty safe in sticking in dollars.

Okay. Thank you. Another question, are ships-- are the ships that you will be buying, are they more efficient than the ships that were-- you were using before? Are they lighter? Do they cost less to operate?

Well, the reason that I mentioned before that we will be sticking to Panamaxes and Capes is that-- that-- that exactly the reply to your question; that we know that for the next 20 years, ahead of us, the efficient vessel for Panamax will be a 75, 76,000 dead weight vessel. I say 75 or 76 for the reason that if you are using more height than size steel on your vessel, you may increase the dead weight capacity but you will decrease the time span of your vessel because of using height and size steel.

Uh-huh.

Now, the-- we know that that vessel will be the efficient vessel for another 20 years to go, and also we know that a multiple of this which is the $170,000, 175, will be also a efficient Cape to have in your hands. Smaller vessels, quite honestly I cannot reply what would be the efficient size to have. Maybe 40, maybe 50, maybe 60.

Uh-huh.

I don't know.

Okay. Thank you.

Thank you. As a final reminder the floor is still open for questions. [OPERATOR INSTRUCTIONS]. Our next question is coming from [Justin Fredricks of Fredericks Asset Management.] Please go ahead.

Good morning. I was wondering is there a way for you to break down the percentage of your shipping exposure to the various goods that you are shipping?

We don't have precise figures on that for the simple reason that the ships are on time charter, and it's the time charters -- who actually decide where the ships will trade and what kind of cargoes they will-- they will carry. We can provide industry statistics and we after each year can look at our vessels and see whether they are close or far from these. Usually they are close with, say, iron ore being carried you know on the bulk carriers of the types that we own of about 30% of the trade, then we have coal about 40%, and the rest is 20% in grains and then other bulk products, but it's a combination that for our fleet varies continuously depending on what the time charters decide to do with the ship.

Okay. So you are estimating-- what you just gave me is a rough estimate?

Yes, I gave you rough estimates judging by our records in the past.

Great.

Which unfortunately is only a very rough guide as to what the mixture will be for 2006.

I understand. Thank you.

Thanks.

Thank you. Ladies and gentlemen, the floor is still open for questions. [OPERATOR INSTRUCTIONS]. There appear to be no further questions. I would now like to the floor back over to Management for any further or closing remarks.

Well, in closing, I want to thank you again for joining us today and for your support of Diana Shipping. We remain convinced of the attractive long-term opportunities in dry bulk shipping market, and we will continue to manage our business in a prudent manner in order to capitalize on those opportunities for the benefit of our shareholders. Thank you.

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time, and have a wonderful day.

Thank you.